In every stock portfolio, you'll find winners and losers. Some stocks make you money, while others might not perform as well and end up in the red. Now, it's common to want to cash in on the stocks that are in profits, but we often hold on to the ones in losses for longer, hoping they'll turn around. While you might want to avoid booking a loss on your investments, you can actually use these losses to reduce your taxes by doing tax loss harvesting. ## So, what's tax loss harvesting? Tax loss harvesting is essentially using the losses from some of your investments to lower your tax liability. When we talk about losses here, we mean unrealised losses—these are losses you haven't actually realised by selling the stocks yet, but if you did sell them now, you'd be selling them for less than what you bought them for. Here's how it works: - First off, you identify the investments that are currently in losses. - Next, you sell these investments and book capital losses. - Now, you can use these losses to offset any gains you’ve made from selling other investments. This means your net capital gains would be reduced and you’d have to pay lower taxes. Now, if you believe those stocks you sold off will eventually bounce back, you can reinvest in them, keeping your portfolio intact. **For example,** Let's say you made a capital gain of ₹2,00,000. Assuming these gains are short-term, you'd owe taxes at a 20% rate, totaling ₹40,000. But if you decide to sell some stocks with unrealised short-term loss of ₹1,00,000, your net STCG for the year would become ₹1,00,000. That means your net tax liability reduces to ₹20,000, saving you ₹20,000 in taxes. |Particulars|Amount| | --- | --- | |Short-term capital gain (STCG)|₹2,00,000| |Tax rate|20%| |Tax on STCG (without harvesting)|₹40,000| |Unrealised losses|₹1,00,000| |Net STCG (after realising losses)|₹1,00,000| |Tax on net STCG|₹20,000| |**Tax saved**|**₹20,000**| ## When can you do tax-loss harvesting? Tax-loss harvesting depends on the type of gains you’ve already booked (realized) and the kind of losses you’re still holding (unrealized). We’ve laid out the scenarios in the table below. ![Tax-loss harvesting opportunities|690x272, 75%](upload://kAG4SCjtb6SO8xRIiCeR17xsrOZ.png) Here’s how to read it: - If you have realized short-term gains + unrealized short-term losses → You can harvest with a simple set-off. - If you have realized short-term gains + unrealized long-term losses → Harvesting is not allowed as long-term losses can only offset long-term gains. - If you have realized long-term gains (above ₹1.25L) + unrealized long-term losses → You can harvest to reduce taxable gains. - If you have realized long-term gains (above ₹1.25L) + unrealized short-term losses → One of the best-case scenarios as short-term losses can offset both short-term and long-term gains. ## When should you do tax loss harvesting? Well, you can technically do it anytime, but generally people tend to wait until towards the end of the financial year, around mid to late March. By then, you'll have a clear picture of your gains for the year, making it easier to do loss harvesting and plan your taxes. **Now, before you get into tax loss harvesting, here are a few things to keep in mind:** 1. Long-term capital losses (holding period >12 months) can only be set off against long-term capital gains and not against short-term gains (holding period < 12 months). 2. Short-term losses can be set-off against both LTCG and STCG. 3. When you sell your holdings, they are settled in a FIFO (First in first out) manner. This means the stocks purchased first will be sold first. Hence, you should carefully consider the holding period of your investments before selling them as it might affect their set-off eligibility. 4. Lastly, LTCL and STCL cannot be set off against any other income like dividends or gains from F&O and intraday trading. Here’s a video for you! https://www.youtube.com/watch?v=zBdP1IWfttw

Hello, If we invest in MF through SIP monthly 10K (or yearly 1.2L) for say 12 years for some long-term perspective which is happening after 20-22 years from now. Then would tax-loss or tax-profit harvesting make any sense/useful (assuming the fund is not outperforming etc. or we are not bothering/comparing its performance etc. with others)? (Note: Read this article to know about tax harvesting: https://www.etmoney.com/learn/income-tax/tax-harvesting-a-way-to-reduce-taxes-on-mutual-fund-returns) To add more details to my question, in other words: If after 2-3 years the investment of say 2.5L becomes 3.4L then booking profits of 90K being tax-free and reinvesting it on the same day (just suppose) the entire 3.4L and repeating the same process after every 1-2 years for 10 years and then during 20th-22th years the final redemption(s) then would this process of booking profits to take benefit of LTCG (tax-free up to 1 Lakh) make any difference/impact (as every time we are reinvesting entire funds and goal is to keep invested for long term)? Thanks.

Hi @AG_125, Yes, the cases you have stated can be used for tax-profit harvesting and save taxes accordingly. [Tax loss harvesting](https://learn.quicko.com/tax-loss-harvesting-stock-trader) is also a way of saving taxes by realizing the unrealized losses and adjusting them against the gains. Hope this helps!

Hi @CA_Niyati_Mistry, Thanks for your response. However, I didn't understand whether tax harvesting would make any sense in this scenario. Let me reframe it as: - If we invest in MF through SIP monthly 10K (or yearly 1.2L) for say 12 years for some long-term perspective which is happening after 20-22 years from the start of the investment (SIP) i.e. after 12 years of continuous investments (through SIP) we hold the investment for ~8 years. Then would tax-harvesting make any sense/useful as we would be re-investing it including the entire profit? Thank you.

Theoretically it is true. But what will happen when I will be booking my profits down the time. I did this Tax Loss Harvesting in 2022 as this was a new subject for me and I did a try. Though tax harvesting helped me in that financial year but when I booked my profits next year I had to pay double the taxes. Plus the transaction charges and other stuff (Twice).

[quote="Surbhi_Pal, post:1, topic:3776"] Now, if you believe those stocks you sold off will eventually bounce back, you can reinvest in them, keeping your portfolio intact. [/quote] Don't you have to worry about GAAR compliance?

I am a salaried employee. Can I sell off some stocks in loss, and reflect that in my net taxable amount?

@CA_Niyati_Mistry @CA_Anand_Thakor My query is - When option contract is exercised on Expiry day, we need to give physical delivery of stocks from our Demat Holding to broker for physical settlement. Is giving physical delivery of stocks consider as Capital Gain/loss or F&O income? As Giving physical delivery from Demat Holding is considered as "Sale of stocks". So, is it needed to report in ITR as Capital income or F&O income ?

Hi @Variety_feisty, Capital losses can only be adjusted against capital gains. Hence in your case, these losses will not reduce your net taxable income if it only includes salary income.

@Surbhi_Pal what is tax treatment for physically settled derivatives? when trader Give physical delivery of stocks to broker from demat holding (For physical settlement of option contract), profit /loss arising out of it, reflect under capital income or F&o income? pls answer mam. What about ''Giving'' physical delivery of shares?? ![Screenshot 2025-03-23 165157|690x159](upload://8YGLEvzsX5uZFaeStuJ3EtceW5I.jpeg)

What is Tax Loss Harvesting? How to save taxes using losses

Income Tax Act 1961 Tax Savings & Deductions

Shrutika_Shah March 24, 2026, 7:42am 3

@CA_Niyati_Mistry If you can help here.